Friday, July 11, 2008

Some Political Facts About Oil

I tried to add this onto the other post, but it was giving me some formatting nightmares so I decided to make a new post. This was forwarded to me and has some political (rather than economic) facts about oil that are useful for a more complete understanding:

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Here we are with a new week and another round of posturing, politicking, and punditry regarding the price of petroleum. As happens when folks do a lot of talking, very little is said.

I hang around educated and talented people. Each individual has at least one university degree. Most read, watch, or listen to more than one news source every day. They span generations with ages ranging from the 20s to the 70s.

Yet, not a single person among them knew the answers to some basic questions pertinent to the growing discourse regarding the rising price of oil. A few knew some of the answers, and some knew a few of the answers. To be fair, I had to look up the answers, or else I would have been among the shoulder shruggers.

For instance, how big is a barrel? Answer: 42 gallons. So, now you know that when the price for a barrel of crude oil hits $140, that's the same as $3.33 a gallon.

What nation supplies the most crude oil and petroleum products to the United States? Answer: The United States. According to the Energy Information Agency (www.eia.doe.gov), our country supplied 41 percent of the oil we consumed in March of this year.

What nation, other than the U.S., supplies the most crude oil and petroleum products to our country? Answer: Canada. Our northern neighbor accounts for 12 percent of our nation's oil and 20 percent of all the oil we import. The rest of the top five include Saudi Arabia (7 percent and 13 percent); Venezuela (6 percent and 11 percent); Nigeria (6 percent and 10 percent); and Mexico (5 percent and 8 percent).

How much oil do we import from Persian Gulf countries? I'm glad you asked. Persian Gulf countries accounted for only 16 percent of our foreign oil imports each year from 2005 to 2007. In fact, our Persian Gulf imports declined most of this decade, from a 15-year high of a little more than 1 billion barrels in 2001 to 791.9 million barrels in 2007.

One barrel of crude oil (which is 42 gallons, remember?), yields about 19.6 gallons of gasoline. The other 22.4 gallons go into the products just mentioned.

How much of the cost of oil goes into the price of gasoline. Answer: A bunch. We consumed about 390 million gallons of gas a day last year in our cars, trucks, recreational vehicles, boats, farm implements, and construction and landscaping equipment. Back when crude was $68 a barrel (that was just last year), it accounted for about 58 percent of the price of a gallon of gasoline. The rest of the price came from refining costs (17 percent), federal and state taxes (15 percent), and distribution and marketing (10 percent).

By the way, the price of crude accounts for about 77 percent of the cost of gas at $4 a gallon.Here's a little something you may not have considered. What products that you buy on a regular basis are sold with tax included? Answer: Gasoline. For everything else, you add the tax at checkout.

The folks in California pay 63.9 cents a gallon in state and federal fuel taxes, the most in the nation. That's just the base, though. Motorists there also pay an additional 6-percent state sales tax, with some paying another 1.25-percent county sales tax plus applicable local sales taxes. Same in Illinois, where Chicago motorists pay 12.75 cents per gallon on top of the 57.9 cents per gallon in state and federal taxes. Some Illinois motorists also pay a 6.25-percent sales tax.

Politicians, pundits, and other TV talking heads don't like to provide these answers, because facts get in the way of positions that pander to the mob. We don't point fingers at Canada, because it's de rigueur to paint the Saudis with the broad brush of blame. Folks float the idea of a moratorium on state and federal gasoline taxes without explaining its minimal impact on gas prices, or without mentioning the $3 sales tax some motorists pay on top of a $50 fill up.

Policymakers don't explain that oil trades in the dollar, which is weak vis-Ã -vis the Euro, because that would require solutions for strengthening the greenback.

And, it's easier for simple minds to convince simpler minds to impose windfall-profit taxes on pension funds and owners of Individual Retirement Accounts who invest in oil companies than to take on credit card issuers charging double- and triple-digit interest rates to the millions of people using plastic to pay for food and fuel. Talk about irony.

And, we sure wouldn't want to impose a windfall-profit tax on someone who goes from making $56,000 a year as, say, an Illinois legislator, to $165,000 a year as, say, a U.S. senator, an increase of nearly 200 percent (not counting book deals or real-estate related loans).